Saturday, July 16, 2011

Wrong On The Merits, But Right On The Money

Always the smartest guy in the room (sarcasm unintended), Barack Obama at the conclusion of his press conference on July 11 turned to his liberal audience beyond the confines of the James S. Brady briefing room and stated

What we can do is to solve this underlying debt and deficit problem for a long period of time so that then we can get back to having a conversation about, all right, since we now have solved this problem, that’s not -- no longer what’s hampering economic growth, that’s not feeding business and uncertainty, everybody feels that the ground is stable under our feet, are there some strategies that we could pursue that would really focus on some targeted job growth -- infrastructure being a primary example.

I mean, the infrastructure bank that we’ve proposed is relatively small. But could we imagine a project where we’re rebuilding roads and bridges and ports and schools and broadband lines and smart grids, and taking all those construction workers and putting them to work right now? I can imagine a very aggressive program like that that I think the American people would rally around and would be good for the economy not just next year or the year after, but for the next 20 or 30 years.

But we can’t even have that conversation if people feel as if we don't have our fiscal house in order. So the idea here is let’s act now. Let’s get this problem off the table. And then with some firm footing, with a solid fiscal situation, we will then be in a position to make the kind of investments that I think are going to be necessary to win the future.

President Obama was trying to draw a parallel between his situation and that of President Clinton following the 1994 mid-term elections. But the 44th President is unlikely to "pull a Clinton," Robert Reich realizes, because "this is not Bill Clinton's economy." He explains

When the Great Recession wiped out $7.8 trillion of home values, it crushed the nest eggs and eliminated the collateral of America’s middle class. As a result, consumer spending has been decimated. Households have been forced to reduce their debt to 115% of disposable personal income from 130% in 2007, and there’s more to come. Household debt averaged 75% of personal income between 1975 and 2000.

We’re in a vicious cycle in which job and wage losses further reduce Americans’ willingness to spend, which further slows the economy. Job growth has effectively stopped. The fraction of the population now working (58.2%) is near a 25-year low—lower than it was when recession officially ended in June 2009.

Wage growth has stopped as well. Average real hourly earnings for all employees declined by 1.1% between June 2009, when the recovery began, and May 2011. For the first time since World War II, there has been a decline in aggregate wages and salaries over seven quarters of post-recession recovery.

"Mr. Obama’s challenge in 2012," Reich concludes, " has nothing to do with Mr. Clinton’s in 1996."

the conciliating Clinton met increasingly savage political opposition, while a prosperity-addled, value-free media at best enjoyed the spectacle, and at worst joined that opposition. He tried to build a bridge to the 21st century, but he couldn't. And right now, Republicans in Congress are on the verge of sending us back to the 19th. To the extent that Clinton was able to turn back his Republican foes, prevent them from doing their worst damage – remember Newt Gingrich's plan for orphanages instead of welfare for the poor? – and win re-election in 1996, it wasn't because he compromised, but because he had the winds of the economy at his back.

Jared Bernstein, until recently the economic adviser to Vice-President Biden and now a blogger at the Washington Post, is a little more hopeful, believing

One key question is how taking the deficit off the table will affect Congressional moderates in both parties who profess to care about it. Would the Ben Nelsons and Kent Conrads of the world be more likely to support expensive liberal priorities if the budget were balanced? My inclination is to say No, but it’s hard to know for sure.

He terms that "not an unreasonable bet," though " a high-stakes gamble."

His colleague at the Post's Plum Line, Greg Sargent, recognizes in Obama's remarks "at least partly an endorsement of several tenets of conservative economics — that deficits feed business 'uncertainty' and so on." (Paul Krugman terms that tenet "the confidence fairy," the myth that slashing deficits will bolster the confidence of the corporate powers, which will reciprocate by expanding employment.) Less convincingly, Sargent argues this is the President's "blueprint for pivoting to jobs and by extension to winning reelection" because

Obama plainly believes that the only way to manage any kind of pivot to jobs is to take the deficit off the table as an issue first. Obama thinks the GOP will ultimately capitulate to some degree on revenues, but knows full well it will be a bad deal for Dems. By signaling openness to entitlements cuts that will anger the Dem base, he hopes to increase the political price the GOP pays for intransigence on revenues and is hoping to preemptively blame Republicans for the lopsided nature of the ultimate deal. More important, he is putting them on notice that once a deficit deal is reached, they’ll have run out of excuses for opposing job creation measures that require government spending.

True, President Obama is in a perpetual Sister Souljah moment, publicly angering his base to demonstrate his conservative, or perhaps true American, bonafides. But that is the only group, his liberal supporters, which he "puts on notice." And no, the GOP, which in Congress and in state capitals throughout the country is aching to "drown government in the bathtub," will not "have run out of excuses for opposing job creation." There will be new excuses and Sargent, though his heart still belongs to Barack Obama, should realize that.

But the question not only should be whether the President can out-Republican the GOP and thereby build a consensus for liberal governance. We have no way to believe whether Obama himself actuallyis convinced, inasmuch as his remarks probably had another, primary, motive. Bernstein has an inkling, remarking "what Obama gave here is an answer to liberals who believe he’s betraying them. He’s saying: I still want the things that you want, but the only way to get them is to deal with the deficit first." Walsh identifies "the gap between Democratic campaigning and Democratic governing. In my lifetime, anyway, Democrats consistently postpone delivering what they promised, in terms of demonstrable change for average Americans, while they try to prove to the right and to the media that they're the responsible grown ups – and the rich get ever richer."

President Obama knows he need not promise anything to the left, which might endanger support he so longs for from independents and moderates. But the man who once wrote "I serve as a blank screen on which people of vastly different political stripes project their own views," must satisfy the left that he will work for progressive causes, or at least that he believes in them.

He puts an arm around those liberals, assuring them "we imagine a project where we’re rebuilding roads and bridges and ports and schools and broadband lines and smart grids, and taking all those construction workers and putting them to work right now." And "I can imagine a very aggressive program like that". It doesn't have quite the uplift of Robert F. Kennedy saying "There are those who look at things the way they are and ask why..... I dream of things that never were and ask 'why not'?"nor of George Bernard Shaw saying nearly the same decades earlier, but it will do.

Obama's supporters, the ones who supported his nomination and election, desperately want to believe, in Bernstein's words, "I still want the things you want." And evidently they still do, as evidenced by those donations, which keep rolling in. "The smartest man in the room" may be a gross understatement.